Why is Infosys buying back Rs. 9300 crores worth of shares? How you can participate?

Infosys has announced a buyback of Rs. 9300 crores worth of shares. Let's see how you can participate.

Infosys share buyback

Infosys announced it would buy back Rs. 9300 crores worth of shares as the quarter ended in September. Its investors are waiting to participate. The share price has dropped by around 20% this year amidst a 16% drop in the IT sector. Infosys started its buyback process on December 7. Its shares have given its investors a return of over 200% in the previous five years. 

Read: Infosys vs. TCS vs. WIPRO: which one to buy?

What is a share buyback?

A company can return its profits to its shareholders through buybacks or dividends. Buybacks are when companies buy their own shares from their current shareholders. The process can happen through a tender offer or open market. Investors have the chance to tender their shares in a tender offer. The price in the tender is generally higher than the current price in the market. The company can also buy back shares through the stock exchanges. However, the prices vary in this case and are generally lesser than the company's set upper limit.

Why is Infosys buying back the shares?

Infosys announced in 2019 that it would return 85% of its free cash to its shareholders as an annual exercise. Hence, the company is returning its free cash to the shareholders through a buyback. The company's investments and consolidated cash were around Rs. 38,921 crores in Q2FY23 compared to Rs. 34,854 crores in Q1FY22.  

Read: Best IT stocks in India for the long term.

Why is Infosys Not Giving Dividends Instead?

The buyback option helps the stock price rise, while the dividend option does not. The historical data shows that the share price declines after the record date. Several shareholders gained confidence, and new investors bought shares as Infosys announced its buyback with an Rs. 1850 upper limit. This has the potential to increase the share price. Investors consider the EPS or earnings per share when they want to invest, and a buyback helps increase the EPS. For instance, if Infosys only possesses 100 shares and profits by Rs 5,000, its EPS will stand at Rs. 50. However, only 80 shares remain in the market if there is a 20-share buyback. The EPS shifts to 62.5 in this case.

Read: How will a buyback affect its shareholders, the company, and promoters?

Infosys will buy back its share through the open market, and investors can't directly sell the shares to Infosys. The transactions must occur through the exchange, and the company wants to buy the shares before June 6, 2023. Infosys has already started the buyback, purchasing Rs. 202 crores worth of shares. It purchased 12,48,000 shares on December 9. It bought 25,000 through BSE and 12,23,000 through NSE. The average purchase price stood at Rs. 1,586.  

Infosys buyback explained


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